Tobacco Documents Online

Draft of December 15, 1953 Preliminary Copy PROXY STATEMENT for SPECIAL MEETING OF STOCKHOLDERS This statement is furnished in connection with the solicitation by the management of Philip Morris & Co. Ltd., Incorporated (herein called the Company or Philip Morris) of proxies to be used at a special meeting of the stockholders to be held on January 26, 1954, and any adjourn- ment thereof. Record holders of Common Stock, $5 par value, at the close of business on January 5, 1954, will be entitled to one vote for each share held. On November 30, 1953, there were outstanding 2,448,121 shares of Common Stock, $5 par value (including 325 shares issuable upon exchange of shares of Common Stock, $10 par value). Holders of the Cumulative Preferred Stock of the Company will not be entitled to vote. A proxy on the enclosed form may be revoked at any time in so far as it has not been exercised. Proposed Acquisition of Common Stock of Benson and Hedges Benson and Hedges had outstanding at the close of business November 30, 1953, 438,428 shares of Common Stock, $4 par value. Such number may be increased by the exercise of options for the purchase of an additional 3,394 shares, and by the issue of stock pursuant to the Benson and Hedges "Employees' Profit Sharing-Stock Bonus and Retirement Plan." There is no other class of authorized stock. The resolution which will be presented to the special meeting contemplates the issue and exchange, on a share-for-share basis, of Philip Morris Common Stock, $5 par value, for Common Stock of Benson and Hedges, whether now outstanding or issued pursuant to the above mentioned options or plan. The exchange will not be made unless Philip Morris can acquire thereby at least 355,460 shares. The text of the resolution follows : RESOLVED, That the Board of Directors of the Company be, and it hereby is, authorized, in the name and on behalf of the Company, and subject to applicable requirements of law, (1) to acquire from holders of Common Stock, $4 par value, of Benson and Hedges, a New York cor- poration, such number of shares thereof as may be possible (but in no event less than 355,460 shares) in consideration of the issue by the Company of a like number of shares of its authorized Common Stock, $5 par value; (2) for such purpose, to make an exchange offer to holders of Common Stock, $4 par value, of Benson and Hedges at such time, for such period or extended period, and upon such other terms and conditions not inconsistent with the fore- going, as the Board may deem expedient; and (3) to do all things in its judgment necessary or proper to effectuate the purpose of this resolution. While counsel have advised that submission of the proposed acquisition to stockholders is not required, the Board of Directors, in view of the size and importance of the transaction, deems such submission desirable and will be guided by its judgment of their response to the proposal. In no event, however, will the Board proceed with the transaction without the favorable vote of a majority of the shares of Common Stock represented at the special meeting. The terms of the proposed acquisition were negotiated with representatives of Benson and Hedges and Tobacco and Allied Stocks, Inc., the majority stockholder of Benson and Hedges. 204S4f7719

Tobacco and Allied Stocks, Inc., and Benson and Hedges have respectively informed the Com- pany that the former intends to accept the exchange offer, if made, and that the latter intends to recommend acceptance to its other stockholders. Certain further information regarding Tobacco and Allied Stocks, Inc., and arrangements relating to the directorate and management of Philip Morris and Benson and Hedges is set forth under the heading "Directors, Officers and Stockholders". Recommendation of the Board of Directors The Board of Directors believes the proposed acquisition to be in the interest of the Company. Benson and Hedges is the manufacturer of the well-known Parliament cigarette, which brand accounts for approximately 97ofo of its dollar net sales. Though Benson and Hedges is not a large factor in the cigarette industry, Parliament is a valuable property. It is a mouth- piece cigarette with a recessed filter which is sold at a manufacturer's price higher than the other principal brands of filter cigarettes, and approximately 40MO to 45% higher than the manu- facturer's price of regular and king-size popular-priced brands without filters. Production costs of Parliament exceed those of such popular-priced brands and may exceed those of the other principal filter brands. The distribution of Parliament, while of national scope, is selective, with primary emphasis on the larger cities. Parliament has an established public following and in the past several years has enjoyed an increased demand. The demand for filter cigarettes has been increasing in recent years. There are presently three principal brands, in addition to Parliament, on the market. The three brands are manufac- tured by large tobacco companies, and two were introduced as recently as 1952 and 1953. While the demand is still small, both quantitatively and in relation to total cigarette demand, it has grown rapidly and has attained proportions which make it advisable that representation in this market be secured for Philip Morris. In the opinion of the Board, the acquisition of stock control of Benson and Hedges-the owner of a filter brand which has already gained public acceptance- is an advantageous way for Philip Morris to obtain the benefits of the demand for filter cigarettes. The present proposal is not the Company's first step in that direction. Before the acquisition of Benson and Hedges was contemplated, studies and preparations had been undertaken with a view to the introduction of a new filter cigarette by Philip Morris. The introduction of a new brand on a national scale, however, is necessarily a matter of considerable hazard. While the Company proposes to continue with the development of its own filter cigarette, the Board feels it undesirable to rely solely on a new and untried brand for an interest in the filter field. It is in this context that the acquisition of Benson and Hedges has commended itself to the Board. In reaching its conclusion, the Board has been impressed by the fact that the growth of Benson and Hedges in recent years has been achieved with a small sales force. It consists of approximately twenty persons, whereas Philip Morris can draw, to the extent deemed desirable, upon more than five hundred. It may be mentioned, too, as set forth in more detail under the heading "Directors, Officers and Stockholders", that the Company expects to obtain the services of the two chief executives of Benson and Hedges. In determining the exchange ratio, the Board of Directors considered earnings, book values, capital structures, size of the companies, market prices, dividends and other factors deemed relevant. For expert assistance in such determination, the Board retained the services of the invest- ment banking firm of Morgan Stanley & Co., New York City, a firm well versed in tobacco equities, which participated in the underwriting in 1950 of stock of Philip Morris and participated in and managed the underwriting in 1952 of debentures of Benson and Hedges. A copy of the report of Morgan Stanley & Co., dated October 1, 1953, is available for inspection by stockholders at the office of the Secretary of Philip Morris, 100 Park Avenue, New York City.

It was the view of Morgan Stanley & Co. that, in attempting to determine relative values, earnings-particularly estimated future earnings-should be given substantial consideration. Their report pointed out that, as the impact of the federal excess profits tax upon Benson and Hedges was considerably greater than upon Philip Morris, the former would derive a relatively greater benefit from the expiration of the tax on December 31, 1953, as is presently provided. The tables under the heading "Comparison of Earnings Per Share of Common Stock", which set forth per share earnings of the two companies over a period of several years, indicate the effect of the excess profits tax thereon. The report concluded that some substantial premium over the then market prices should be attributed to the Benson and Hedges shares in any exchange offer, and recommended a share- for-share exchange ratio from the points of view of the stockholders of both companies. Necessarily, a proposal such as that under consideration involves business risks and calls for the exercise of business judgment. The cigarette industry in general is highly competitive. Com- petition has recently increased in the filter field. As the large companies move aggressively into that field, the competition will become even keener. The ultimate effect on the sales of high- priced brands like Parliament cannot now definitely be determined and may be substantial (see tables under the heading "Sales and Production"). Similarly, changes in economic conditions may influence the purchase of the more expensive brands unfavorably. Again, filter cigarettes are relatively new in the United States and future improvements in the field may conceivably require alterations in Parliament the effect of which cannot be foretold. The Board can give no assurances. It is persuaded by its best judgment, however, that the exchange offer is a fair one which it is in the interest of Philip Morris to make, and accordingly recommends, that the stock- holders vote in favor of it. Capitalization of Philip Morris and Benson and Hedges The table below shows the capitalization of the Company, and the consolidated capitalization of Benson and Hedges and its subsidiaries, as of October 31, 1953, and as adjusted to give effect to the exchange offer. Adjusted to reflect Outstanding 100% as of acceptance October 31, of exchange Authorized 1953 offer , J. PHILIP MORRIS Funded Debt 2Y8°fo Sinking Fund Debentures, maturing April 1, 1966 (Sinking Fund payments commence March 31, 1956) ........... 32,000,000 32,000,000 32,000,000 Short Term Notes ....................... $62,000,000(1) $62,000,000 (1) Capital Stock Cumulative Preferred Stock, par value $100 per share, issuable in series ....... 317,156 shs.(2) 4°fo Series ........................:. 181,834(3) 181,834(3) 3.90% Series ...................... 124,070(3) 124,070(3) Common Stock, par value $5 per share... 3,000,000 shs. 2,448,121(4) 2,886,549(4) (5) (6) 3 7

Authorized BENSON AND HEDGES Funded Debt(7) Adjusted to reflect Outstanding 100% as of acceptance October 31, of exchange 1953 offer Fifteen Year 4/ jo Sinking Fund Deben- tures, due October 1, 1967 ............ $ 3,000,000 $ 2,800,000 $ 2,800,000(8) 3/°fo First Mortgage of 585 Water Street Realty Corporation, $455 payable quar- terly to 1957 ; due April 1, 1957. ....... $ 72,500 $ 69,770 $ 69,770(8) Short Term Notes ....................... $ 2,250,000(9) $ 2,250,000(8) (9) Common Stock, par value $4 per share...... 1,000,000 shs. 438,428 (10) 438,428(10) NOTES : (7) (8) (1) On December 16, 1953, the amount outstanding was $ (2) Including 6,612 shares redeemed but not yet formally retired pursuant to Virginia statutes, and excluding 32,844 originally authorized and issued shares which have been so retired. None of the shares mentioned in this note may be reissued. (3) Exclusive of 2,021 shares of 4% Series and 2,619 shares of 3.90% Series held in treasury. (4) Including 325 shares reserved for issuance in exchange for Company's previously authorized Common Stock, par value $10 per share. (5) Subject to increase to the extent that the exchange offer is accepted in respect of shares of Benson and Hedges Common Stock hereafter issued pursuant to the "Employees' Profit Sharing-Stock Bonus and Retirement Plan" or pursuant to the exercise of options granted under the "Employees' Restricted Stock Option Plan". (See "Business of Benson and Hedges" herein.) As of October 31, 1953, such options were outstanding in respect of 3,394 shares. The Board of Directors of Benson and Hedges has resolved that no options in addition to those outstanding on that date shall be granted prior to the expiration of the exchange offer. (6) Preemptive rights, if any, of the Common Stock to be issued pursuant to the exchange offer have not been limited by the Company's certificate of incorporation as amended. Includes amounts due within one year. As soon as practicable after the consummation of the exchange, it is intended to retire the funded debt and short term notes of Benson and Hedges (at a premium of 4Qfo in the case of the Fifteen Year 4/ fo Sinking Fund Debentures) with funds to be borrowed by Philip Morris and loaned by it to Benson and Hedges. - (9) On December 16, 1953, the amount outstanding was $ (10) Subject to increase upon the issuance of the shares or the exercise of the options referred to .p m ~ to in note (5). ~ *.~ `. 4

Results of Operations The following summary statement of results of operations of Philip Morris has been reviewed by Lybrand, Ross Bros. & Montgomery, independent certified public accountants, and the summary statement of Benson and Hedges and subsidiary companies has been reviewed by Collins & Company, independent public accountants. These summary statements are included in reliance upon the opinions of said firms included herein. The statements should be read in conjunction with the applicable financial statements and the notes thereto included herein. PHILIP MORRIS Per Share of Common Stock (Note 4) i Shf O h Based on Shares Outstanding at End of Respec- tive Periods (Note 5) lscal Years Ended Net Sales March 31 (Note 1) ost of Goods Sold (Note 1) pp ag, Selling. General and Admin- istrative Expenses er t Deductions Income (Net of before Other Federal and Income) State Taxes (Note 2) on Income Cash Federal and Dividends State Taxes Declared on Income Net (including (Note 3) Earnings Earnings extras) Earnings Based on Shares Out- standing Oct. 31, 1953 1949 ........ $228,372,009 1950 ........ 255,752,488 1951 ........ 305,804,331 1952 ........ 306,698,324 1953 ........ 314,894,718 7 mos. to Oct. 31, 1953 180,486,468 $188,655,871 208,985,530 245,937,345 248,977,304 259,732,580 144,010,719 $17,499,145 19,470,228 22,496,784 25,319,811 29,989,456 16,520,535 $1,557,025 $20,660,058 2,129,546 25,167,184 2,283,057 35,087,145 4,054,069(6) 28,347,140 2,944,482 22,228,200 1,844,781 18,110,433 $ 8,162,000 $12,498,058 9,864,000 15,303,184 18,398,000 16,689,145 15,720,000 12,627,140 10,883,000 11,345,200 9,906,000 8,204,433 $5.52 $2.48 6.86 2.86 6.31 2.86 4.65 3.00 4.13 , 3.00 3.10 1.50 $4.77 5.93 6,31 4.65 4.13 3.10 NOTES: (1) Includes U. S. Internal Revenue Stamps affixed to products, as follows: 1949, $112,846,333; 1950, $125,046,204; 1951, $147,312,301; 1952, $148,812,213; 1953, $157,266,405; and seven months ended October 31, 1953, $84,959,249. (2) Includes interest on funded debt and short-term loans, as follows: 1949, $1,099,523; 1950, $1,667,913; 1951, $1,947,878; 1952, $2,873,634; 1953, v1 $3,065,823; and seven months ended October 31, 1953, $1,514,568. (3) Includes Federal excess profits taxes, as follows: 1951, $2,686,000; 1952, $700,000; 1953, credit of $700,000; and seven months ended October 31, 1953, $380,000. (4) After preferred dividend payments: 1949, $817,680; 1950, $789,256; 1951, $1,253,047; 1952, $1,244,311; 1953, $1,231,567 and seven months ended October 31, 1953, $606,579. (5) Data for the fiscal years ended March 31, 1949 to 1951, inclusive, have been adjusted to give effect to a 5°fo stock dividend (aggregat- ing 116,577 shares) paid in April, 1951. During June, 1950, 333,077 additional shares of common stock were sold for cash. (6) Includes $635 998 paid for cancellation of export contract , . BENSON AND HEDGES (Consolidated) Per Share of Common Stock (Note 4) ears Ended Net Sales December 31 (Notes 1 and 6) ost of Goods Sold (Note 1) Shipping, Selling, General, Administrative and Other Expenses (Note 6) Other Deductions (Net of Other Income) (Note 2) ncome before Federal Taxes on Income ederal Taxes on Income (Note 3) et Earnings Based on Shares Outstanding at End of Respective Periods (Note 5) Based on Shares Outstanding October 31. 1953 1948 ....... $ 4,847,580 $ 3,595,450 $ 753,553 $ 2,968 $ 495,609 $ 187,890 $307,719 $ .69 $ .62 1949 ....... 7,038,104 5,087,212 1,001,009 6,802 943,081 ' 357,703 585,378 1.42 1.28 1950 ....... 10,362,063 7,504,022 1,418,445 13,987 1,425,609 674,813 750,796 1.90 1.71 1951 ....... 14,130,058 10,216,807 1,838,502 81,137 1,993,612 1,213,091 780,521 1.97 1.78 1952 ....... 19,958,343 14,710,952 2,553,413 99,633 2,594,345 1,699,733 894,612 2.04 2.04 1953: 10 mos. to Oct. 31 ., 22,386,703 16,143,882 2,918,671 127,754 3,196,396 2,140,854 1,055,542 2.41 2.41 3 mos. to Mar.31 .. 6,598,154 4,796,179 743,083 36,444 1,022,448 703,080 319,368 .73 .73 7 mos. to Oct.31 .. 15,788,549 11,347,703 2,175,588 91,310 2,173,948 1,437,774 736,174 1.68 1.68 czLL YO8v4z

NOTES: (1) Includes U. S. Internal Revenue Stamps purchased, as follows: 1948, $1,626,881; 1949, $2,403,316; 1950, $3,475,894; 1951, $4,765,017; 1952, $7,101,489; three months ended March 31, 1953, $2,310,568; seven months ended October 31, 1953, $5,703,705; and ten months ended October 31, 1953, $8,014,273. (2) Includes interest, as follows: 1948, $9,915; 1949, $16,116; 1950, $29,849; 1951, $101,737; 1952, $130,673; three months ended March 31, 1953, $48,017; seven months ended October 31, 1953, $124,601; and ten months ended October 31, 1953, $172,618. (3) Includes Federal excess profits taxes, as follows: 1950, $81,549; 1951, $236,281; 1952, $379,898; three months ended March 31, 1953, $171,407; seven months ended October 31, 1953, $350,153; and ten months ended October 31, 1953, $521,560. (4) After preferred dividend requirements of $34,360 in 1948 and $25,700 in 1949. (5) Shares outstanding at end of respective periods were adjusted to give effect to a recapitalization effected October 5, 1950, whereby each outstanding share of common stock, without par value, was changed into four shares of common stock, par value $4 per share. Data for the years ended December 31, 1948 and 1949 have been adjusted to give effect to a 10~fo stock dividend (aggre- gating 35,952 shares) paid in December 1950. During November, 1952, 39,738 additional shares of common stock were sold for cash. The only cash dividend on common stock during the period was 50 cents per share in 1948 which was the equivalent of 12/ cents per share after giving effect to the recapitalization. (6) In previous reports, cash discounts were included as general and administrative expenses. Net sales and general and agministrative expenses (as reported herein) have been adjusted to reflect cash discounts as a deduction from sales. Reference is made to "Business of Benson and Hedges" for information regarding increases in cigarette selling prices and in leaf tobacco costs. Comparison of Earnings Per Share of Common Stock EAP.NINGS PER SHARE BEFORE REFLECTING FEDERAL EXCESS PROFITS TAXES OR O~ EARNINGS PER S HARE REFUNDS THEREOF (NOT E 4) Philip Morris Years (Before Exchange) (Note 1) (Note 2) Benson and H (Note 2) Pro-forma edges Combined (Note 3) Philip Morris (Before Exchange) (Note 2) Benson and Hedges (Note 2) Pro-forma Combined (Note 3) 1949 ........................ $4.77 $ .62 $4.14 $4.77 $ .62 $4.14 1950 ........................ 5.93 1.28 5.22 5.93 . 1.28 5.22 •-- - 1951 ........................ 6.31 1.71 5.61 7.40 1.90 6.57 1952 ........................ 4.65 1.78 4.22 4.94 2.32 4.54 1953 ........................ 4.13(5) 2.04 3.81 3.84(5) 2.91 3.70 7 months ended Oct. 31, 1953 3.10 1.68 2.89 3.26 2.48 3.14 NOTES : (1) Data for Philip Morris are for the fiscal years ended March 31 of the years stated and for Benson and Hedges for the preceding calendar year. (2) Based on shares outstanding at October 31, 1953. (3) The amounts per share for each annual period are based upon earnings applicable to the common stock of Philip Morris for the fiscal year ended March 31 of each year combined with similar data for Benson and Hedges for the preceding calendar year. The calculations are based on a total of 2,886,549 shares of Philip Morris common stock to be outstanding (assuming 100% exchange of Benson and Hedges shares outstanding at October 31, 1953). The shares to be outstanding may be increased as a result of the provisions of the "Employees' Restricted Stock Option Plan" and "Employees' Profit Sharing-Stock Bonus and Retirement Plan" of Benson and Hedges described under the heading "Business of Benson and Hedges." (4) Under present provisions of the Internal Revenue Code, excess profits taxes expire at the end of 1953; however, no prediction is made that such taxes may not be reimposed in the future. (5) Earnings per share of $4.13 reflect a refund of excess profits under carry-back provisions of Internal Revenue Code amounting to $700,000; earnings per share before excess profits taxes ($3.84) excludes such refund. firULT4WZ

Sales and Production UNIT SALES OF CIGARETTES Benson and Hedges-All Brands Parliament Brand Philip Morris-All Brands lendar Year umber of Cigarettes (000) Increase over Preceding Year (or Same Period Thereof) % umber of Cigarettes (000) Increase over Preceding Year (or Same Period Thereof) % umber of Cigarettes (000) Increase over Preceding Year (or Same Period Thereof) % 1946 ...................................... .. 308,210 - 158,815 - 29,001,659 - 1947 ...................................... .. 356,924 15.8 235,250 48.1 26,577,242 (8.4) 1948 ...................................... .. 463,617 29.9 348,876 48.3 32,460,298 22.1 1949 ...................................... .. 673,399 45.2 570,422 63.5 36,533,385 12.5 1950 ...................................... .. 985,661 46.4 893,999 56.7 43,001,002 17.7 v 1951 ...................................... .. 1,315,140 33.4 1,234,432 38.1 44,019,339 2.4 1952 ...................................... .. 1,796,745 36.6 1,726,315 39.8 41,533,691 (5.6) 11 mos. 1953 .............................. .. 2,181,944 35.1 2,135,506 37.8 37,355,032 (0.8)• 1st Quarter(1) ......................... .. 597,882 59.9 584,542 64,0 10,929,121 11,4 2nd Quarter(1) ......................... .. 573,476 35.8 560,467 38.5 10,033,599 (6.1) July ................................... .. 218,105 34.0 213,633 36.6 3,575,038 (5.1) August ................................ .. 186,719 12.8 182,551 14.4 3,409,374 (6.9) September(2) .......................... .. 196,771 24.0 192,454 25,9 3,399,971 0,9 October ................................ .. 211,490 22.6 207,969 24,9 2,9 }9,931 (13.3) November .............................. .. 197,501 24,6 193,890 27,0 3,057,928 2.7 (1) The table below shows for both companies and the Parliament brand the percentage increase over the same period of the prcceding year for the months January through June, 1953. Both companies and the industry generally increased prices near the end of February when price controls were terminated. The king-size Philip Morris brand was introduced in January. January February March April May June Benson and Hedges ............... 53.6% 46.9% 79.3% 45,3% 26.0% 36.2% ,Parliament ........................ 57.9% 50.4% 83.8% 48.3% 28.6% 38.8% Philip Morris ..................... (3.4%) 23.9% 15.3% (3.8%) (8.7%) (5.6%) (2) The king-size Parliament brand was introduced in selected markets in September, 1953. Unit sales thereof have been as follows: September, 3,394,000; October, 4,489,000; November, 2,540,000. GUL TQS#+'0Z

PRODUCTION OF CIGARETTES Benson and Hedges-All Brands Philip Morris-All Brands Industry(3) oc Increase Increase Increase over over over Preceding Preceding Preceding Year (or Year (or Year (or Number Same Number Same Number Same of Period Percentage of Period Percentage of Period Cigarettes Thereof) of Cigarettes Thereof) of Cigarettes Thereof) Calendar Year (000) % Industry (000) % Industry (000) % 1946 ....................... 300,066 - 0.09 26,832,966 - 7.7 350,038,093 - 1947 ....................... 365,958 22.0 0.10 26,091,738 (2.8) 7.1 369,682,769 5.6 1948 ....................... 465,799 27.3 0.12 33,095,817 26.8 8.6 386,825,746 4.6 1949 ....................... 687,950 47.7 0.18 36,715,015 10.9 9.5 384,961,695 (0.5) 1950 ....................... 994,952 44.6 0.25 43,466,740 18.4 11.1 391,955,743 1.8 1951 ....................... 1,326,248 33.3 0.32 44,676,797 2.8 10.7 418,801,801 6.8 1952 ....................... 1,795,503 35.4 0.41 41,904,996 (6.2) 9.6 435,546,869 4.0 11 mos. 1953 ............... 2,251,783 38.3 - 36,778,589 (4.0) - - - lst Quarter(1) .......... 599,510 54.4 0.56 10,885,550 8.8 10.1 107,614,797 4.6 2nd Quarter(1) .......... 641,863 59.6 0.62 10,424,919 (2.8) 10.0 103,980,719 (3.5) July .................... 191,072 16.8 0.58 2,800,863 (12.3) 8.5 33,110,381 (9.7) August .................. 185,656 13.1 0.49 3,422,252 (9.3) 9.1 37,650,895 (6.4) September(2) ........... 206,282 26.2 0.56 3,407,758 (4.5) 9.2 36,885,163 (7.1) October ................. 230,855 21.5 - 3,211,099 (19.2) - - - November ............... 196,545 25.8 - 2,626,147 (14.5) - - - (1) The table below shows for both companies the percentage increase over the same period of the preceding year and the percentage of industry production, for the months January through June 1953. Both companies, as well as the industry generally, increased prices near the end of February, when price controls were terminated. The king-size Philip Morris brand was introduced in January. January February March April May June Benson and Hedges Percentage increase ............. 39.9 52.0 72.9 74.9 61.3 44.3 Percent of industry production ... 0.56 0.54 0.57 0.66 0.63 0.56 Philip Morris Percentage increase ............. (2.9) 6.8 27.4 5.6 (10.6) (3.6) Percent of industry production ... 11.7 9.7 9.6 11.1 9.4 9.6 (2) The king-size Parliament brand was introduced in selected markets in September, 1953. Production thereof has been as follows: (3) September, 4,164,000; October, 4,420,000; November, 5,617,000. Source: Annual reports and bulletins of Commissioner of Internal Revenue. Industry figures subsequent to 1951 are preliminary, and with respect to 1953, are available only for 9 months. For such 9 month period the percentage increases over the same period of the preceding year were-Benson and Hedges 42.4%, Philip Morris (1.0%), industry (2.4%) ; percentages of industry were- Benson and Hedges .57% and Philip Morris 9.7%. 9ZZLtfl$VOZ

Dividends Philip Morris On March 20, 1950, the Directors of Philip Morris increased the regular quarterly dividend on the Common Stock from 500 to 750 per share, and in April, 1951, a 5ojo stock dividend was paid. On the basis of the number of shares of Conitnon Stock outstanding on October 31, 1953, a quarterly dividend of 750 per share would require an annual disbursement of $7,344,363 and, on the assumption that all shares of Common Stock of Benson and Hedges outstanding on that date are exchanged, $8,659,647. The amount of future dividends will depend upon circumstances which cannot now be predicted. Certain limitations on payment of Common Stock dividends are referred to in Note 5 of Notes to Financial Statements of Philip Morris herein. Interest requirements on the Debentures and dividend requirements on the Cumulative Preferred Stock of Philip Morris outstanding October 31, 1953, aggregate $840,000 and $1,211,209 per annum, respectively. Benson and Hedges Cash dividends of 50¢ per share were paid by Benson and Hedges in 1948 on its then out- standing shares of no par value Common Stock, which were the equivalent of 12/0 per share after giving effect to the recapitalization described in Note 5 to the foregoing Results of Opera- tions-Benson and Hedges. A 10C/o stock dividend was paid in December, 1950. Certain limita- tions on payment of Common Stock dividends, contained in the indenture pursuant to which the Debentures of Benson and Hedges were issued, are referred to under the heading "Description of Common Stock of Benson and Hedges" herein. Annual interest requirements on the Debentures and other funded debt of Benson and Hedges outstanding October 31, 1953, aggregate $128,442. As stated in Note 8 under the heading "Capitalization of Philip 1\Iorris and Benson and Iiedges", it is contemplated that all such funded debt will be retired following consummation of the exchange. Market Prices The following table, compiled in part from Bank and Quotation Record and in part from the Commercial & Financial Chronicle, shows the high and low sale prices of the Common Stock of Philip Morris on the New York Stock Exchange and of the Common Stock of Benson and Hedges on the American Stock Exchange for the indicated periods. Philip Morris Common Stock Benson and Hedges Common Stock Month or Quarter Shares Traded High Low Shares Traded High Low 1953 December 1-15 ............... November ................... 60,200 49Y8 44Y8 4,600 47~j 43/ October ..................... 29,600 52Y8 48S/ 5,850 51 43 Third Quarter ............... 106,500 54Y4 49% 5,200 -F3/ 38 Second Quarter .............. 76,100 52Y8 49Y8 4,200 43Y4 37 First Quarter ................ 151,400 55 46/ 6,750 46 36Y4 1952 Fourth Quarter .............. 96,300 52 45~ 7,300 37/ 27 Third Quarter ............... 67,000 47Y8 44 8,950 31 23/ Second Quarter .............. 63,200 49 42Y4 3,250 25/ 23 First Quarter ................ 90,000 49Y8 46Y4 4,850 24Y8 20/ 1951 Fourth Quarter .............. 82,300 49/ 45y8 8,550 28 23/ The last sale prices of the Philip Morris Common Stock on the New York Stock Exchange and of the Benson and Hedges Common Stock on the American Stock Exchange on December , 1953, were and , respectively. An announcement of a prospective merger of Philip Morris and Benson and Hedges, on a share-for-share basis, was made in October, 1953. ~ a 0 M ~ 9 ~+ v

Business of Benson and Hedges Benson and I-Iedges was incorporated on October 10, 1907, tinder the laws of the State of New York. Substantially all of its stock was owned by Benson & Hedges, Ltd., a British cor- poration, until 1928, when the British corporation sold its interest. Since 1941, Tobacco and Allied Stocks, Inc., a Delaware corporation, registered under the Investment Company Act of 1940 as a management investment compan_v, has owned a majority of the outstanding stock. Products and Distribution Benson and IIedges is engaged primarily in the business of manufacturing and selling cigarettes. Its principal product is Parliament filter-mouthpiece cigarettes, which have accounted for more than 900 of its dollar net sales since 1950. King-size Parliament cigarettes, first introduced in four cities in September, 1953, have since that time been introduced in a limited number of other cities. Other brands of cigarettes manufactured and sold include Virginia Rounds, Debs, Benson .~. Iledges Private Blend, and a number of high-grade specialty brands. Several brands of smoking tobacco are also manufactured and sold. In addition, it sells Benson & Hedges La Yerba and Benson & Hedges Clear IIavana domestic cigars, and Benson & Iledges l?xclu- sive Import Selection imported cigars, all of which cigars are manufactured for it by others. Parliament cigarettes were first manufactured and sold by Benson and Hedges in 1931 and were first marketed with a filter-mouthpiece in 1932. Sales of Parliament cigarettes have increased in recent years, while sales of other Benson and Hedges products have diminished both in volume and in relative importance to the total business of Benson and Hedges. The percentage of Benson and Hedges total dollar sales represented by sales of Parliaments increased from approximately 62 jo in 1947 to approximately 95°fo in 1952. Sales of Benson and Hedges products have been almost entirely for consumption within the United States. They are sold mostly to jobbers and chain stores and, to some extent, to selected retail outlets. Parliaments are also sold to the United States armed forces, ships' stores and, to a limited extent, in the export market. An agreement between Benson and Hedges and the above mentioned British corporation, made at the time the latter sold its interest in Benson and Hedges in 1928, recites the ownership and use by Benson and Hedges within the United States, and by the British corporation within certain other territories, of trade names and trade marks embodying the name "Benson and Hedges", and provides that Benson and Hedges will not "engage, directly or indirectly, in Great Britainor Ireland or in any part of the Continent of Europe or in India or any of the British Colonies, Dominions or Possessions, excepting only The Dominion of Canada and Newfoundland, in the business of manu- facturing, selling, or dealing in tobacco, cigars, cigarettes or articles or supplies used or usable by smokers or users of tobacco, or sell any of such products for export into said territory" ; the agreement also provides that the British corporation will not engage in such business in the United States and that each company will "respect in every way the trademarks and tradenames of the other" in their respective territories. As an incident to the sale of certain Canadian assets by the British corporation in 1926, the Board of Directors of Benson and Hedges adopted a reso- lution to the effect that the latter would not engage in business in Canada or Newfoundland. Benson and Hedges is not doing business in the aforesaid territories, and it may be that by virtue of the foregoing it is legally obligated not to do business in such territories. The promotion and advertising efforts of Benson and Hedges have been devoted primarily to Parliament cigarettes, and expenditures have been increased from year to year in keeping with the growth of the brand. Advertising media used have included primarily newspapers and television and, to a lesser extent, magazines and radio. 10